Venezuela Seen Getting Off 'Lightly' In $908M Exxon Payment

CARACAS (Dow Jones Newswires), Jan. 1, 2012

An international arbitration panel awarded U.S. oil major Exxon Mobil Corp. (XOM) about $908 million in a verdict over oil assets nationalized by Venezuelan President Hugo Chavez in 2007, the company said late Saturday.

The payout is substantially lower than the $7 billion that Exxon was seeking in restitution and is likely to be a boon for Venezuela's defiant leftist government, which in recent years has embarked on a widespread nationalization campaign to centralize control over key economic sectors.

"It's a nice Christmas present for Chavez and Venezuela," said Russ Dallen, an analyst and bond trader at local investment bank Caracas Capital Markets. "The verdict is a lot less than people were probably thinking. It certainly means that [state oil company Petroleos de Venezuela SA, or PdVSA] got off lightly," Dallen added.

Exxon spokesman Patrick McGinn said the decision by an arbitration court at the International Chamber of Commerce, "confirms that PdVSA does have a contractual liability to Exxon Mobil."

A PdVSA spokesman declined comment when reached by telephone on Sunday.

Both parties are still awaiting a decision on the suit filed by Exxon's local subsidiary, Mobil Cerro Negro Ltd., against Venezuela in front of the World Bank's International Centre for Settlement of Investment Disputes, or ICSID, where the Chavez administration is facing around 20 pending cases. With billions in potential payouts looming, the number of cases has been the source of constant concern for holders of Venezuelan sovereign bonds.

The verdict comes four years after Exxon, the world's largest publicly traded oil company, left Venezuela in a spat with the country's government, which decreed that the state oil monopoly would have the majority stake in joint ventures with foreign partners. By law, PdVSA now holds at least 60% of all oil projects.

Exxon has said that it invested around $750 million into the Cerro Negro facility. The company reduced its claim to $7 billion from an initial claim of $12 billion.

Despite the smaller-than-expected compensation for Exxon, the money is still a substantial chunk of change for PdVSA, which posted a net profit of $4 billion during the first six months of 2011. The Venezuelan oil monopoly has faced declining oil production and cash flow problems in recent years as Chavez diverts large portions of revenue toward social projects, which critics say has resulted in insufficient investments into maintenance.

Earlier this year, Venezuelan Oil Minister Rafael Ramirez said his government planned to pay no more than a total of $2.5 billion between its arbitration cases with Exxon and ConocoPhillips (COP). Fellow oil major Chevron Corp. (CVX), the second-largest U.S. oil company, decided to accept PdVSA's majority stake and remained in Venezuela.

In September, Ramirez also threw out the possibility of settling with Exxon outside of courts, shortly after the country's prosecutor general told reporters that the $6 billion settlement was being negotiating.

The Cerro Negro project had an estimated value of around $2 billion and is located in Venezuela's massive and still mostly untapped Orinoco heavy oil belt. It is a legacy of Venezuela's temporary bid to open up its oil industry to foreign players in the 1990's, at a time when oil was cheap and large investments were needed for the first wave of heavy oil projects. The facility has since had its name changed to Petromonagas and currently processes some120,000 barrels of heavy crude oil a day. PdVSA is the majority owner, while Anglo-Russian oil joint venture TNK-BP (TNBP.RS) holds a 16.7% stake and has said that it is interested in purchasing Exxon's former share from PdVSA.

Copyright (c) 2012 Dow Jones & Company, Inc.


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